Dollar a touch firmer this morning
The euro traded up to a high of almost $1.0460 against the dollar yesterday but has since slipped back to just under $1.04, a little lower than yesterday morning. Sterling has also come back from highs yesterday of about $1.2375 to trade a touch below $1.23, again down slightly from yesterday morning. EURGBP remains in a tight range around the £0.8450 level. Both have “survived” Trump’s first few days in office notwithstanding a flurry of tariff threats issued to Mexico, Canada, China and the EU, which just highlights their sharp fall against the US currency since November’s election (of around 5 cents and 7 cents respectively), though they are certainly not out of the woods yet. Meanwhile, it is relatively quiet economic data-wise again today, ahead of flash PMIs for January in the main economies tomorrow, while next week the focus will be on the Fed and ECB monetary policy meetings.
Government bond yields in the main markets were marginally higher yesterday (by 3-4bps in the case of 10-year yields ) following a fairly steady decline over the past week or so, while US and European equities advanced again, with the Nasdaq leading the way in the US with gains of almost 1.5% on the day.
ECB President Christine Lagarde says the 2% inflation target “is in sight as the disinflationary process continues”, albeit she has some concerns about elevated services inflation and strong wage gains. The central bank remains well on track to lower rates again next week, with the market fully priced for another 25bps cut in the deposit rate (the market also fully expects the Fed to stay on hold at next week’s meeting).
Germany’s central bank, in its latest monthly report, says the economy is “unlikely to emerge from its long period of stagnation” in the short-term, citing ongoing weakness in the manufacturing sector and heightened economic and political uncertainty.
As noted, it’s a relatively quiet day ahead in terms of economic data, with consumer confidence due in the Euro area and jobless claims scheduled in the US, while Donald Trump will address the World Economic Forum in Davos.
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